August 5, 2020
Wielding charity for political influence
Marianne Bertrand and Matilde Bombardini discuss how much of corporate philanthropy is really lobbying.
Politicians often try to claim credit for money spent by corporate foundations.
The amount of money in politics seems to grow every year. Spending by outside groups reached a record of half billion dollars in the 2016 elections cycle, and lobbying expenditures regularly exceed $3 billion annually.
In the July issue of the American Economic Review, they estimate that as much as $1 billion a year of corporate philanthropy is used to sway congressional representatives. For a typical year, that’s over twice as much as contributions from political action committees (PAC).
Money from corporate foundations could be having a far-reaching effect on how our laws and regulations get written. But unlike traditional lobbying, there are few transparency requirements for such charitable spending.
Professors Bertrand and Bombardini recently spoke with the AEA’s Tyler Smith about the political influence that corporations wield through their charities and what can be done about it.
The edited highlights of that conversation are below, and the full interview can be heard using the podcast player below.
Tyler Smith: What is the influence seeking you’re interested in, and how is it different from traditional types?
Marianne Bertrand: The most common types that have been studied are lobbying and campaign contributions via political action committees (PAC) when it comes to corporations. Our goal in this paper was to try to open this box and try to assess whether there are other ways, other expenditures that corporations engage in, where the ultimate goal is to try to influence the lawmaking or rulemaking process. And the particular candidate that we focused on was corporate philanthropy. So the idea is that corporations spend a lot of money on philanthropic causes, very often by giving money to nonprofits, and we try to investigate whether part of this spending on nonprofits by corporations has also a political influence seeking goal.
Smith: How big a role does corporate philanthropy play in Congress?
Matilde Bombardini: Let's say total corporate philanthropy is about $20 billion annually, depending on the year that you're looking at. And so we estimate that about 7 percent of that is related to political influence. Of course, you know, the majority of corporate philanthropy has the goals that you may imagine. . . . [T]hat is an amount that is much bigger than PAC [spending], which is the campaign contributions that Marianne was talking about. And it is comparable to the lobbying expenditures.
Smith: Can I get a specific example about how this is influencing behavior? You mentioned Joe Baca and Orrin Hatch in your paper. Maybe that's a good place to start.
Bombardini: The story is that Mr. Baca founded a foundation under his name and the major corporations that are the contributors to his foundation are the ones that are also knocking on his door as a congressional member and are looking for specific legislation.
There are other examples. But we think that the major mechanism is just favoring causes dear to the politicians, . . . and that there's a lot of credit claiming so that the politicians can sort of showcase these projects that are funded through this corporate philanthropy. . . . In general, [politicians] can increase their visibility through these projects.
We have to push and make data available to researchers more widely, and make sure that we don't take a step back.
Smith: What kind of distortions [from this corporate philanthropy] should concerned citizens or voters be looking out for?
Bertrand: The same kind of concerns you may have if you look at lobbying expenditures and campaign finance expenditures. So if you think that those behaviors by the corporations are distorting the kind of laws that are being written or the kind of rules that agencies implement, that's obviously highly problematic. . . . I think the reason why this particular channel that we study is somewhat different from these other examples is that there's much less transparency about what's going on there. . . . [W]hen it comes to corporate philanthropy, the mechanism that we highlight, you don't have that transparency. There's no requirement to disclose. It's much harder to figure out that this is happening.
Smith: Is there anything we can do about this type of influence that you're studying? And if there is, what should we do about it?
Bertrand: For me, at the minimum, transparency would be really important. I think it is possible to document these mechanisms, but with a lot of hard work. And we should think about additional ways for this information about where this philanthropy is going to be made easily accessible both to voters and to shareholders.
Bombardini: There was actually a threat a couple of years ago of making this data even less transparent. At the moment there's a layer of data that we can’t access, which is the direct donation of a company to nonprofits. We can only access the donations made by the foundation that is linked to the company. . . . The IRS has these data and one day maybe we could access them. But a few years ago there was a proposal to not collect this data so that it would never be accessible to anyone. So we have to push and make data available to researchers more widely, and make sure that we don't take a step back.
"Tax-Exempt Lobbying: Corporate Philanthropy as a Tool for Political Influence" appears in the July issue of the American Economic Review. Music in the audio is by Podington Bear. Subscribe to the monthly Research Highlight email digest here.